Federal Income Taxes I - Chapter 4

all-inclusive concept

gross income generally includes all realized income from whatever source derived; U.S. tax laws are based on this

realized income

income generated in a transaction with a second party in which there’s a measurable change in property rights between parties

deferral items

realized income that’ll be taxed as income in a subsequent year

exclusions

realized income that’s exempted from income taxation

ordinary income

income that’s taxed in the current year according to the tax rate schedule

long-term capital gain

taxed at favorable rates compared to ordinary income

short-term capital gain

taxed at ordinary income rates

itemized deductions

medical/dental expenses, taxes, interest expense, gifts to chairty, gambling losses, etc.

alternative minimum tax (AMT)

a tax on a broader tax base than the base for the “regular tax”

self-employment taxes

Social Security and Medicare taxes paid by the self-employed on a taxpayer’s net earnings from self-employment; synonymous with “FICA tax”

AGI deductions

alimony paid, health insurance deduction for self-employed taxpyaers, rental and royalty expenses, net capital losses, one-half of self-employment taxes paid, business expenses, losses on dispositions of assets used in a trade or business, contribution to qualified retirement accounts, IRAs

tax prepayments

withholdings, estimated tax payments, and tax overpaid on the prior-year tax return

tax deduction

reduces taxable income

tax credit

reduces the tax liability dollar for dollar